Gold is telling us that equities are toppish, Donald Trump hasn’t delivered on his promises just yet, and the European Union is in trouble.
Gold has been carrying the commodities index this year and it may be the only major defensive play left for those looking for simple, fast trades to protect recent portfolio gains. Investors may be hedging with gold, particularly via State Street’s gold ETF. No one knows what is going to happen with the NAFTA rewrite; no one knows if there is going to be a border tax; and no one knows what will become of the euro with euro-skeptics leading in polls in France and The Netherlands. Gold is like a soft pillow and a chocolate cake for cautious investors still waiting for what Trump-o-nomics will really bring.
Trump said on Monday that an infrastructure build-out was both needed and coming. But the ambiguity of it keeps gold shining. The path of least resistance is skewed towards the upside, analysts from ThinkMarkets in London believe. Fed meeting minutes and commentary to be published in the Beige Book on Wednesday will set much of the tone for the dollar and bring volatility to gold in the meantime.
Gold is also rising because of voting in The Netherlands and more news coming out of the U.K. regarding Brexit. Theresa May will end the freedom of movement between EU passport holders and this will create a rift beteen her and Angela Merkel of Germany. If investors see that Germany and Brussels, the head of the European Commission, are going to make it harder for the U.K. to leave the Union, then it will lend credence to gold bull case.
The SPDR Gold Trust fund is up 9.6% this year and the Market Vectors Gold Miners ETF is up 16%.